How Norway avoided the 'oil curse' and built a trillion dollar wealth fund.
Or what happens when a country follows personal financial principles at scale.
A thread 🧵
Striking oil is a bit like winning the lottery. It seldom results in long term happiness.
Most countries with huge oil fields turn out to be authoritarian regimes or dictatorships with civil wars.
But Norway consistently ranks as one of the most developed, richest and happiest countries in the world.
While also building a $1.3 trillion wealth fund - approx $250,000 per citizen.
1/ Think long term
Fluctuating oil prices lead to cycles of inflation and recession.
Learning from neighbours with the "Dutch Disease" of natural gas and it's own experiences, Norway set up a wealth fund to invest surplus oil revenues.
Getting money is one thing. Keeping it is another. @MorganHousel
2/ Don't get high on your own supply
Despite having one of the world’s largest offshore oilfields, Norway understood that the oil would one day run out.
It decided to cautiously limit oil output
Scarface didn't get it, Norway did.
3/ Invest in index funds
The fund is the single largest owner in the world’s stock markets.
Norway owns 1.5% of all public companies on the planet. Let that sink in.
Don't try to look for the needle; buy the haystack. - @JohnBogleWisdom
4/ Diversify your portfolio
It started out by investing only in bonds. Then diversified to include stocks and later real estate.
Interestingly, it decided to exit investments in other oil companies in order to hedge the risk; not environmental concerns.
Each year, Norway can spend only the interest generated by the fund, which is about 3%.
The fund capital remains untouched.
Time in the market > timing the market
6/ Live below your means
Living frugally is part of Norwegian culture and obscene shows of wealth is frowned upon.
This means no gold plated lambos, unfortunately.
People who live below their means enjoy a freedom that people busy upgrading their lifestyles can't fathom. @naval
To be clear, this is not investment advice. As @TrungTPhan says, this is life advice.
And this is an oversimplification that probably wouldn't play out the same way in other countries.
Norway had several things going for them including good governance and as a result, people willing to pay high taxes.
But when as a country you're thinking several steps ahead, you get all time chess greats like @MagnusCarlsen.